Adam Smith PURE CAPITALISM (1723-90), British philosopher and economist, who wrote An Inquiry into the Nature and Causes of the Wealth of Nations in 1776.

“The Invisible Hand” Adam Smith described in The Wealth of Nations, how the invisible hand of the marketplace leads the economy to produce an efficient variety of goods and services, with efficient production methods as well.

The Spectrum of Economic Systems Mixed Command and Control Capitalism Free Markets Mixed The Spectrum of Economic Systems

PRIVATE PROPERTY • Resources owned by private individuals • freedom to enter contracts • right to bequeath LIMITATIONS: • Illegal activities

FREEDOM OF ENTERPRISE • free to obtain resources and organize production •no obstacles to enter or exit Broad legal limitations prevail

FREEDOM OF CHOICE • owners of resources can employ or dispose as they wish •labor is free to choose job • consumers can buy goods and services as they choose Broad legal limitations prevail

ROLE of SELF-INTEREST • Individuals (resource owners and consumers) have the right to make decisions based on self-interest and profit motive

COMPETITION • Promoting one's own monetary returns is the basis of competition • Large numbers of sellers will diffuse power of monopolist • Ease of entry and exit will foster flexibility in market system

MARKETS AND PRICES • market is the mechanism which brings together buyers and sellers • decisions by buyers and sellers on products and resources are made effective through the price system BUYER…SELLER

LIMITED GOVERNMENT • Self-regulating and self-adjusting market precludes role of government • Little need beyond imposing broad legal limits

Extensive Use of Capital Goods • advanced technology and use of capital are most efficient • profit is incentive to try new ideas and ways to produce

Specialization & Efficiency • Concentrating activity on a single task or production operation • highest and best use of resources will call for specialization of resource base

Use of money • money functions as a medium of exchange • facilitates the exchange Of goods which specialization entails

Mixed Market System Government Business Industry